Class Certification in Texas Stream pyramid lawsuit upheld
Back in 2009 Juan Ramon Torres and Eugene Robison filed
a civil action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), alleging that Stream Energy, through its multi-level marketing program, Ignite operated a fraudulent pyramid scheme.
Rather than making meaningful profits through its sales, the Plaintiffs contend that Stream is set up like a classic pyramid scheme to make almost all of its money through the recruitment of salespeople.
When I reviewed Stream about a year ago, I found it extremely odd that affiliates were charged $375 when they signed up.
This fee appeared to be funding the compensation plan.
Over time, Stream’s market has become saturated, and the Plaintiffs
claim that they have lost money as a result of their participation in the IA program.
The Plaintiffs allege that over 86% of individuals who signed up as IAs lost money in fees, collectively losing over $87 million.
In contrast, a miniscule number of individuals have made significant sums of money.
The lawsuit has been progressing slowly over the years. In October of 2015 an attempt to certify class-representation was granted.
Stream appealed the decision in Texas’ Fifth Circuit Court of Appeals, who on September 30th upheld the District Court’s decision.
At the core of the Fifth Circuit court’s decision was the potential motivation behind people joining Ignite, and whether this would be enough to defeat class certification.
The court concluded
that if the Plaintiffs prove that the Stream operated a fraudulent pyramid scheme, a jury may reasonably infer from the Plaintiffs’ payments to join as IAs that they relied on Ignite’s implicit representation of legitimacy, when in fact it was a fraudulent pyramid scheme.
Although it is not impossible that some class members might have joined as IAs despite knowledge of the fraud, economic speculation alone as to what could have motivated an individual class member is not enough to defeat class certification.
Based on the deception inherent in pyramid schemes and the losing proposition that they present to the vast majority of participants, it is highly unlikely that many—if any—of such class members exist.
And more importantly, the district court expressly found no evidence indicating that any putative class member knew of the fraud.
Because the Defendants failed to demonstrate that such individualized issues will affect even a single class member at trial, we find no error in the district court’s conclusion that individualized issues of causation will not predominate.
Accordingly, we affirm the district court’s class certification.
Basically individual instances of Stream affiliates knowing of the alleged fraud when they signed up was not enough to defeat class certification as a whole.
Stream also failed to provide an instance of this individual circumstance occurring (the District Court also found no evidence), nor how it might affect class members at trial.
As I understand it Torres and Robison’s lawsuit will now proceed as originally filed, that being a RICO class-action lawsuit against Stream.
Update 21st May 2019 – Stream Energy settled the class-action case in late 2018.
BehindMLM published details of the settlement as part of our coverage of an acquisition deal between Stream Energy and NRG Energy.